Senate renews push to tax online sales

WASHINGTON—Last week, while the nation was preoccupied with bombings, chasing terrorists, and overhauling the immigration system, a little-known senator filed a bill that could significantly alter commerce in the United States.

The Marketplace Fairness Act would allow states to tax consumers on all online purchases, regardless of the seller’s location, for internet-based businesses doing at least $1 million in transactions per year. The full Senate could vote on the measure as early as Thursday. Majority Leader Harry Reid, D-Nev., brought the bill to the floor Monday, and after abbreviated debate, the Senate passed (75-22) a motion to proceed Wednesday afternoon.

The bill’s author, Mike Enzi, R-Wyo., has introduced the legislation before, and it’s never gone anywhere. But this time he filed it in a way that bypasses the committee process and moves straight to the Senate floor for debate—before most Americans knew it existed.

The legislation has bipartisan support but also bipartisan opposition: 17 Republicans and five Democrats voted against the motion to proceed Wednesday. Kelly Ayotte, R-N.H., and Ron Wyden, D-Ore.—both from states with no sales tax—are leading the opposition against the bill, arguing that businesses in their states would be forced to take up taxes for states in which they have no vested interest.

“The issue boils down to the fact that the legislation we’re considering would create an enormous compliance burden for a lot of small businesses out there, making them tax collectors for thousands of far-away jurisdictions,” said Minority Leader Mitch McConnell, who opposes the bill even though his home state of Kentucky has a 6 percent sales tax. He said it would cost consumers, and businesses with less than 100 employees would be “completely overwhelmed” with “applying, keeping, updating, and reporting sales tax” for all of the nearly 10,000 tax jurisdictions around the country.

Companies with a major online presence, such as Amazon.com and Walmart, are pushing the legislation because they have the software and infrastructure to comply.

“It’s written by big business,” Rep. Tim Huelskamp, R-Kan., told me. “They bought and paid for that legislation with campaign contributions.”

Huelskamp and several other conservatives addressed the Marketplace Fairness Act at a midday meeting Wednesday with the media, and they expressed concern about the legislation, and the way the Senate has handled it.

“The only reason they would rush it through is if they’re afraid of full and open debate—which is what Harry Reid did,” Huelskamp said.

The bill faces an uncertain future in the Republican-controlled House, where similar legislation has already been filed. Republicans are divided on the issue, even though voting for it would mean breaking the anti-tax pledge most GOP lawmakers have signed.

“It would be a tax-rate increase because there’s no tax rate there now,” Rep. Marlin Stutzman, R-Ind., told me. He added that he would be open to considering the legislation, but he favors offsetting the revenue increase with tax relief elsewhere so the nation’s overall tax burden remains roughly the same. The bill is expected to bring in more than $10 billion in additional revenue—with some estimates as high as $23 billion.

Huelskamp, who said the legislation would equate to more big government, expressed concern that once some states claim sales tax in other jurisdictions, they could eventually try to collect income tax as well. He said Republicans shouldn’t be pushing one piece of tax reform when the GOP has long sought comprehensive tax reform.

The proposed bill would overturn the effects of a 1992 Supreme Court ruling, Quill v. North Dakota, which said businesses are not compelled to collect sales tax from consumers in states in which they have no physical presence. The ruling was directed at catalog companies that mail products to other states, but it has had far-reaching effects for online sales, which have ballooned since then. Total internet sales in the United States are expected to top $300 billion by 2016.